1099R with Code T

[Dave T]

T/p gives me a 1099R with Distribution Code T which is " exception applies."

Distribution amount is $ 5,623 and taxable amount of $ 0. Seems right

His basis in the Roth is $5,500 which he contributed to in 2007 and he is over 59 1/2.

On the 8606 part 3 it is calculating a taxable amount of $ 123 ( 5623 - 5500. ) This doesn't seem right so not sure what might be wrong?

Any thoughts would be appreciated.

Thank you

[kathyc2]

Software is not recognizing that account has been open for 5 years.  Likely a check box somewhere.

[Lee B]

"T" informs the IRS that the holding period was not met, but the distribution is exempt from the penalty for early withdrawal because it has been paid to a beneficiary.  The initial withdrawn contributions are tax-free; however, distributed earnings are taxable."

You would have to go back to the issuer of the 1099 R and find out why they used a Code T?

[BrewOne]

A new custodian, if the client moved the account less than five years before, is required to use code "T".  If they have had the account open long enough (with no recent conversions) I think the workaround is on the 1099-R worksheet.  But make sure it qualifies.

[jklcpa]

5 hours ago, Dave T said:

T/p gives me a 1099R with Distribution Code T which is " exception applies."

Distribution amount is $ 5,623 and taxable amount of $ 0. Seems right

His basis in the Roth is $5,500 which he contributed to in 2007 and he is over 59 1/2.

On the 8606 part 3 it is calculating a taxable amount of $ 123 ( 5623 - 5500. ) This doesn't seem right so not sure what might be wrong?

Any thoughts would be appreciated.

Thank you

You shouldn't need to fill out the 8606 at all. Software should enter gross distribution on 4a, and 4b should be -0-.  I agree with Kathy that you are missing a checkbox somewhere.

1040 instructions for lines 4a and 4b, under Exception #2 says
Exception 2. If any of the following apply, enter the total distribution on line 4a and see Form 8606 and its instructions to figure the amount to enter on line 4b.
1.  Doesn't apply to your situation
2. You received a distribution from a Roth IRA. But if either (a) or (b) below applies, enter -0- on line 4b; you don’t have to see Form 8606 or its instructions.
    a. Distribution code T is shown in box 7 of Form 1099-R and you made a contribution (including a conversion) to a Roth IRA for 2018 or an earlier year.

In fact, the 8606 instructions for Part III, line 19 says don't include on line 19 any of the following, and item #4 says:
4. Distributions made on or after age 59½ if you made a contribution (including a conversion or a rollover from a qualified retirement plan) for any year from 1998 through 2019.

[jklcpa]

The 1099R appears to be correct with respect to box 2 showing -0- as taxable. As I said above, line 4a should have $5623 on it, line 4b -0-, and do not fill out or include form 8606 as that would be wrong to do so. Code T is telling you that no penalty applies.

I'm curious, is ATX trying to create a form 8606 for this, or is that you trying to use it because it is showing basis there?

[Dave T]

Yes, thanks to all. 

I was missing the checkbox on the 1099R worksheet. Once I checked the code J/T box calculated correctly and as stated no 8606.

Thanks again

[Margaret CPA in OH]

This has been an interesting discussion as I've never seen a code T.  I am confused about the references to boxes 4a and 4b.  I do not see those boxes on any of several 1099R's or the input worksheet.  Box 4 is Federal tax withheld.  I see Boxes 2 and 2a as Gross distribution and Taxable amount.  Am I missing something critical?  Also I cannot find a checkbox on the ATX 1099R worksheet for a code J/T.  Clearly I am missing something important and feel pretty dumb just now.  Most of my clients have 1099R's and these are new things to me so I had better 'get with it!'

[jklcpa]

Margaret, those are line references on the 1040, not boxes on the 1099R.

[Dave T]

Margaret I too had to look  for the appropriate box on the 1099R worksheet to make this Roth distribution non taxable.

 

[Margaret CPA in OH]

Judy, AHA!  It was confusing to me to sort of co-mingle 1009R boxes with 1040 boxes.  Dave T, I still don't see where the code box with  J/T is an option.  Surely I am still missing something (far to easy for me these days).  I would appreciate clear directions in case this situation arises with me. 

[Dave T]

Margaret, if you look on the 1099R input Worksheet just below where you are entering data there is a box that says Box 7 including Code J or T. Check this box if a a "Qualifying" Roth Distribution.

I had not checked the box ( actually didn't see it originally ) and thus the taxability of the $123 and the inclusion of the 8606. Once I checked the box, no tax and no 8606.

Hope this helps

 

[Margaret CPA in OH]

Sorry, I thought you were indicating a combined code J/T which I did not see.  I am very familiar with Box 7 and have selected many codes including either a J or a T.  I just misunderstood what was written.  All good now!